Billionaire to cut pay amid cash crunch
LeEco co-founder Jia Yueting apologizes to shareholders and vows to slow expansion
The billionaire chairman of China’s LeEco has admitted his technology empire is running out of cash to sustain a headlong rush into businesses from electric cars to smartphones.
In a lengthy letter to employees, company co-founder Jia Yueting apologized to shareholders and pledged to slash his income to 1 yuan (20 cents), slow LeEco’s madcap pace of expansion and move the company toward a more moderate phase of growth.
LeEco is the umbrella holding company for a sprawling family of businesses that includes sports media, automobiles and TVs. The company known for its LeTV streaming service has aggressively pursued funding and bets on new ventures, from an electric-car plant in Nevada to a $2.7-billion acquisition of California TV maker Vizio Inc.
“No company has had such an experience, a simultaneous time in ice and fire,” Jia wrote in a letter, obtained by Bloomberg, describing LeEco’s rise and subsequent issues. “We blindly sped ahead, and our cash demand ballooned. We got overextended in our global strategy. At the same time, our capital and resources were in fact limited.”
Analysts have begun to question LeEco’s longer-term prospects, given the opacity surrounding investments by its various subsidiaries and a reliance on equity-backed loans. Shares in Leshi Internet Information & Technology Corp. and Coolpad Group Ltd., the two listed companies Jia chairs, were little changed after Monday’s sell-off.
“The company spread itself too quickly. They have a big ambition to create an ecosystem for different de- vices, not only for phones and TVs and set-top boxes but for vehicles,” said Sandy Shen, a research director with Gartner Inc. “They have a big ambition that is too big to swallow at this moment.”
Jia highlighted measures to lessen the company’s burden in his memo. LeEco will immediately begin costcutting programs, decrease subsidies for customers and focus on existing businesses instead of new ones, he added, apologizing to shareholders of Leshi in response to criticism that he hasn’t paid them enough attention.
“They definitely need to cut back quite a bit to sustain the cash flow,” Shen said. “Their core business is still quite strong because they have a lot of good content.”
A self-made billionaire who got his start working in IT at a local tax bureau, Jia founded Leshi Internet Information & Technology in 2004, one of the first companies in China to stream TV shows and movies to paying subscribers. He entered the smart TV businesses in 2013 and the smartphone market in 2015.
But his growing empire relies on a risky financing model. Leshi is pub- licly listed on the Shenzhen Stock Exchange and the only profitable entity, according to Winston Cheng, LeEco’s head of corporate finance. Jia has borrowed against his shares in Leshi for cash that he invested into his other companies, regulatory filings show.
That practice has invited scrutiny in the U.S., where Jia is trying to get electric car-making venture Faraday Future off the ground. Nevada Treasurer Dan Schwartz has balked at issuing bonds needed to get the project up, citing doubts about Jia’s ability to raise funds.
Leshi’s stock has plummeted by almost a third since the start of 2016. Jia has showed off an electronic concept car dubbed the LeSee, and in September raised more than $1.3 billion from a consortium of Chinese investors to make it. But in his memo on Monday, Jia singled out the car division for its profligacy, saying it had already spent 10 billion yuan in early development.
“Our fundraising ability isn’t strong,” Jia wrote. “The scale of our external fundraising had trouble satisfying the demands of our rapid expansion.”
Jia Yueting pledged to slash his salary to 20 cents due to money troubles with his company, China’s LeEco.